The Wall Street Journal today writes about how the Obama administration is repeating the “mistakes of the past by intimidating banks into lending to minority borrowers at below-market rates in the name of combating discrimination.” Assistant Attorney General for Civil Rights Thomas Perez has argued that bankers who don’t make as many loans to blacks as whites (because they make lending decisions based on traditional lending criteria like credit scores, which tend to be higher among white applicants than black applicants) are engaged in a “form of discrimination and bigotry” as serious as “cross-burning.” Perez has compared bankers to “Klansmen,” and extracted settlements from banks “setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit,” treating welfare “as valid income in mortgage applications” and providing “favorable interest rates and down-payment assistance for minority borrowers with weak credit,” notes Investors Business Daily.

Under Perez’s “disparate impact” theory, banks are guilty of racial discrimination even if they harbor no discriminatory intent, and use facially-neutral lending criteria, as long as these criteria weed out more black than white applicants. The Supreme Court has blessed a more limited version of this theory in the workplace, but has rejected this “disparate impact” theory in most other contexts, such as discrimination claims brought under the Constitution’s equal protection clause; discrimination claims alleging racial discrimination in the making of contracts; and discrimination claims brought under Title VI, the civil-rights statute governing racial discrimination in education and federally-funded programs. Despite court rulings casting doubt on this “disparate impact” theory outside the workplace, the Obama administration has paid liberal trial lawyers countless millions of dollars to settle baseless “disparate impact” lawsuits brought against government agencies by minority plaintiffs, even after federal judges have expressed skepticism about those very lawsuits, suggesting that they were meritless.

Fearing bad publicity from being accused of “racism”, banks have paid out millions in settlements after being sued by the Justice Department, even though they would probably prevail before most judges if they aggressively fought such charges (although doing so would probably cost them millions in legal fees). A Michigan judge called one proposed settlement “extortion.” These settlements provide cash for “politically favored ‘community groups’ ” allied with the Obama Administration, and the Journal’s Mary Kissel predicts that “many” of the loans mandated by these settlements “will eventually go bad.”

This is exactly what caused the first recession.

Who caused the first recession?

Here’s a summary of how we got into the first recession – it was caused by the Democrats, and the Republicans tried to stop them.

When US Representative Barney Frank spoke in a packed hearing room on Capitol Hill seven years ago, he did not imagine that his words would eventually haunt a reelection bid.

The issue that day in 2003 was whether mortgage backers Fannie Mae and Freddie Mac were fiscally strong. Frank declared with his trademark confidence that they were, accusing critics and regulators of exaggerating threats to Fannie’s and Freddie’s financial integrity. And, the Massachusetts Democrat maintained, “even if there were problems, the federal government doesn’t bail them out.’’

Now, it’s clear he was wrong on both points — and that his words have become a political liability as he fights a determined challenger to win a 16th term representing the Fourth Congressional District. Fannie and Freddie collapsed in 2008, forcing the federal government to buy $150 billion worth of stock in the enterprises and $1.36 trillion worth of mortgage-backed securities.

Frank, in his most detailed explanation to date about his actions, said in an interview he missed the warning signs because he was wearing ideological blinders. He said he had worried that Republican lawmakers and the Bush administration were going after Fannie and Freddie for their own ideological reasons and would curtail the lenders’ mission of providing affordable housing.

“I was late in seeing it, no question,’’ Frank said about the lenders’ descent into insolvency.

This is not in doubt – this is a known fact. Democrats caused the recession by meddling in the free market.

Democrats caused the recession and Republicans tried to stop them

Here is Barney Frank in 2005 claiming that fears of a housing bubble are unfounded.

Here’s the timeline showing who wanted to regulate Fannie and Freddie, and who blocked their attempts.

Here’s video from a hearing showing Democrats opposing regulations:

That’s right – Republicans wanted to regulate Fannie Mae and Freddie Mac, and Democrats said Fannie Mae and Freddie Mac are “doing a tremendous job”.

Fannie Mae and Freddie Mac had paid the Democrats off handsomely during multiple election cycles, but I’m sure that the Democrats’ opposition to regulations had nothing to do with those political contributions.

The only ones to try and stop the Democrats were George W. Bush in 2003 and John McCain in 2005. Both attempts were blocked by Democrats.

NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

[…]Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

[…]Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were “affordability products” originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,

Of option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.

Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

* Political pressure led to the erosion of responsible lending practices:

In the early 1990s, Fannie and Freddie began to come under considerable political pressure to lower their underwriting standards, particularly on the size of down payments and the credit quality of borrowers. (p.6)

* Lower down payments led to housing prices that outpaced income growth: Once government-sponsored efforts to decrease down payments spread to the wider market, home prices became increasingly untethered from any kind of demand limited by borrowers’ ability to pay. Instead, borrowers could just make smaller down payments and take on higher debt, allowing home prices to continue their unrestrained rise. Some statistics help illustrate how this occurred. Between 2001 and 2006, median home prices increased by an inflation-adjusted 50 percent, yet at the same time Americans’ income failed to keep up. (p. 11)

* Members of an “affordable housing” coalition shared profits with political allies to help legitimize their business practices: Fannie Mae created and used The Fannie Mae Foundation to spread millions of dollars around to politically-connected organizations like the Congressional Hispanic Caucus Institute. It also hired well-known academics to give an aura of academic rigor to policy positions favorable to Fannie Mae. One paper coauthored by now-Director of the Office of Management and Budget Peter Orszag, concluded that the chance was minimal that the GSEs were not holding sufficient capital to cover their losses in the event of a severe economic shock. The authors suggested that “the risk to the government from a potential default on GSE debt is effectively zero,” and that “the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.” (p.7)

* The Government Sponsored Enterprises led the way into the housing crisis: Fannie Mae and Freddie Mac were leaders in risky mortgage lending. According to an analysis presented to the Committee, between 2002 and 2007, Fannie and Freddie purchased $1.9 trillion of mortgages made to borrowers with credit scores below 660, one of the definitions of “subprime” used by federal banking regulators. This represents over 54% of all such mortgages purchased during those years. (p.24)

My comprehensive post on this issue is here. In that post, I collected videos of Democrats admitting that their plan was to force banks to make loans to unqualified borrowers, as well as news articles by the New York Times and Los Angeles Times on the topic.

Almost no one realizes that this entire subprime lending mess was created by the Community Reinvestment Act, which was passed by President Carter, a Democrat, in 1977. Later on in the 1990s, Bill Clinton, another Democrat, passed laws to enforce the original bill. The purpose of the CRA is to force banks to make risky loans to people who can’t afford to repay those loans.

The extremely left-wing Los Angeles Times explains in 1999 that the CRA was passed to force banks to make risky loans.

Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws.

…

In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains… Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.

The extremely left-wing New York Times noted in 1999 that the GSEs gave out the risky loans under duress from Democrat Bill Clinton.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

According to the New York Times in 2003, George W. Bush tried to stop the Democrats from ruining the economy with these forced loans. He was blocked by Democrats like Barney Frank.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

…

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Here are some video clips to prove that the Democrats opposed regulating the GSEs. They are responsible for this mess, along with the irresponsible people who signed up for these loans that they could not repay.

Timeline of the events in the crisis: Bush was the first to recommend regulating the GSEs in April, 2001. In 2003, Bush tried to create a new federal agency to regulate the GSEs. He was blocked from doing so by the Democrats in the Senate. In 2005, Alan Greenspan warned that failing to regulate the GSEs could be a catastrophe. Again, Democrats blocked the effort to regulate Fannie Mae and Freddie Mac. The video shows Democrat Chuck Schumer protesting that regulation is not needed. In 2006, McCain and other Republicans introduced a bill to regulate the GSEs. Again, the Democrats voted against it and nothing happened.

Fannie Mae CEO addresses Democrats: Fannie Mae CEO calling Obama and the Dems the “Family” and “Conscience” of Fannie Mae. The Democrats obstructed the regulation of the GSEs while taking political contributions from them, especially Obama. Franklin Raines, Jamie Gorelick and Jim Johnson were all executives at the GSEs and are all Democrats. Other Democrats like Penny Pritzker ran other mortgage banks into the ground, and now work for Obama.

According to Human Events, Obama himself sued banks on behalf of ACORN, to force the banks to make these risky loans.

Obama sued Citibank under the Community Reinvestment Act in a typical ACORN-style lawsuit to force the bank to make these risky loans. ACORN filed many of this type of lawsuit alleging racism in all of them.

According to opensecrets.org, Obama was also the second-highest recipient of political contributions from the GSEs. The American Spectator notes that he included 5.2 billion dollars of taxpayer money for ACORN in the porkulus bill.

UPDATE 1: The Achoress just posted even more of the history of this mess here. She has a link to Nice Deb’s post which contains about 2 dozen warnings issued by the Bush administration about the looming crisis, including 17 warnings in 2008 alone.